Innovation isn't about structuring a process to lead to an outcome so much as it's about creating space—both elbow room, the space to roam free of bureaucratic rules and red tape, and head room, the freedom to see differently, think wildly, and aim higher. The leaders who generate more creative energy and innovation are always wrestling with the question: How do we design in more slack? Or, how do we cultivate an environment and support work that enlists people as drivers of their own destiny and inventors of the company's future?

Those questions are the beating heart of nine-year-old Australian enterprise software company Atlassian. Founded with the intent to become "a different kind of software company," Atlassian has also dedicated itself to developing a different way of working. The result: the company stands out as much for its fresh, energetic, relentlessly clever approach to engaging and unleashing people as it does for the software development and collaboration tools it makes. And it's grown to $100 million in sales (with no salespeople) and 18,000 customers around the world (including Citigroup, Nike, NASA, Facebook, and Zappos) on the basis of that approach.

Atlassian is constantly inventing and refining practices to unleash and ignite its people. One of those practices has gone viral. It's called FedEx Day, a twenty-four hour innovation blitz of hacking, prototyping, and presenting that involves almost everybody in Atlassian's three offices around the world once a quarter. Launched seven years ago by co-founder Mike Cannon-Brookes as an effort to retain the creative vigor of a startup even as the company expanded rapidly, FedEx Day is an experiment in structuring the kind of slack that not only gives new ideas room to grow—but also pushes them forward.

The two pillars of the practice address that tension between opening up space to explore and driving to produce. First, participants must work on something that is explicitly not their day job—a passion project, a personal itch you're dying to scratch, or an organizational pain point that is forever back-burnered. Second, they must deliver something in 24 hours—hence FedEx, "when it absolutely, positively has to be there overnight." In the course of 18 FedEx Days, Atlassian has done exactly that, with 550 projects shipped and 47 features or products delivered to the company's customers.

It's no wonder that the colorful practice has captured the imagination of leaders and aspiring innovators around the world (it helped that Dan Pink chronicled the practice in his runaway bestseller, Drive). Dozens of organizations—from Flickr to Hasbro to the Mayo Clinic to elementary schools—have launched their own versions of FedEx Days and passionate fans share their experiences on a LinkedIn group dedicated to the practice.

And last fall, in keeping with the company's spirit of openness, Atlassian decided to spread the wealth even further by sharing the FedEx Day source code with the lucky winner of a global contest. Over the last few months, nearly 150 organizations—from Fortune 10 companies to schools to non-profits to technology startups—competed to win two days with a team of "FedExperts." Yesterdat, Atlassian announces the winner: Nintendo of America. On April 26th, three veteran FedExers will lead Nintendo's 60-some engineers in Redmond, WA through a full-blown FedEx Day, free of charge.

The good news is, the lessons and insights the Atlassian team have developed in the course of 18 rapid-fire innovation immersions aren't reserved for the winners alone. I spent some time with Atlassian leaders and FedExperts to extract some of the most instructive elements of the FedEx Day source code:

Open up space

All too often, good companies with good intentions invest heavily in recruiting brilliant talents—and then immediately cram them into a box. Few people have the elbowroom and headroom to exercise (much less maximize) their passions, their full imagination, their extracurricular capabilities, their eclectic interests at work. FedEx Days offer a focused invitation to do just that.

Jonathan Nolen, Atlassian's director of developer relations and a FedExpert with 15 FedEx Days under his belt says, "the core rule is to work on something that is not your job—something that's nowhere on your roadmap, something you wouldn't get to next week or next month, an idea that has the potential to be radical and possibly change the way things are done but may be too speculative to unseat our current direction. All the things that would never get worked on if we didn't make this slack space." Or, as one developer put it, FedEx Days are about "setting aside some time to let our brains run wild." Whether that means inventing a completely new feature, tackling a buggy system no one wants to touch, or producing volumes of customer-friendly documentation, it's a completely self-directed exercise in changing things for the better.

Create just enough structure

It's not enough to just give people space, it's also important to focus effort with a little bit of structure. The intense pace of the FedEx Day—the clock starts at 1-2pm on Thursday, participants work through the day and often through the night, and demos and judging starts at 3-4pm on Friday—creates pressure to abandon hesitation and produce fearlessly. The FedEx Day is bounded by a "shipment order" on the front end—participants write down what they intend to do, why they're doing it, how much they expect to accomplish, and then pressure test the idea with colleagues—and a "delivery report" on the back end—a video, blog post, or screen shot that explains what an individual or team did and how it worked out (or how it didn't).

In between, the goal is to find your flow—to generate what FedExperts refer to as the "spike," a massive rush of creative energy to push radical, speculative, or forgotten ideas down the road to reality.

Compete for respect

All activity during a FedEx Day drives toward the Friday afternoon demo. Each individual or team gets three minutes to present their project in front of their peers and company leaders. "The bragging rights are serious," says Nolen. "There's no monetary compensation, no bonus or salary implications. What you win is the thrill of showing your idea to your peers, the chance to get a radical idea out of your brain and onto the strategic roadmap. The whole company is there—the product managers, the founders, the people who control the roadmaps. If they get inspired by a good idea or they see something they thought was not achievable, they'll change the roadmap the next week. People love that. And you can win that way even if you don't win the first place trophy."

The fact that all demos are judged by peers fuels ambition and courage, says Nolen. "The audience we're building for is our peers. There's no penalty for failing. Trying ambitious things and failing is a good outcome. We'd rather have you try something great and fail than do something timid that doesn't really change anything."

Have fun (and beer)

Atlassian is nothing if not true to its Australian roots: a fridge stocked with beer is one of the crucial bylaws of FedEx Day. Even more important, says Nolen, is to build in check points during which people can connect and talk about their progress (this is usually when the pizza arrives). "Sometimes we'll see people recruiting others for help or an individual abandoning their own project to work on something they find more exciting. It's crucial to create the place and time for that social interaction to happen."

The company is so serious about this kind of interaction (and fun in the sun) that they have rented a beach house where they install every new engineer (in groups of about 10) to hack code for a week, ending in an inaugural FedEx Day for freshman developers who get to present their projects in front of the entire company.

Spread the rewards

Atlassian is also serious about sharing. All information (both internal and external) is public by default. The company has narrated its experiment with FedEx Days from the start with public blogs, FAQ pages, and wikis. Now Atlassian has gone even further to open up the source code for its approach to innovation. Says Nolen, "We don't think of FedEx Day as a distinct competitive advantage. We want to share it and spread it. Our mission in life is to make software developers more effective, productive and energized. Our view is, we're software developers, craftspeople and artists, we're not just cogs in a machine—and the more people on the planet who get to express that kind of creativity, the better."